KARACHI: The State Bank of Pakistan (SBP) has introduced a revised and consolidated Regulatory Framework for Exchange Companies (RFEC) aimed at enhancing governance, internal controls, and compliance within the sector.
The updated RFEC consolidates and modernizes existing regulatory instructions, replacing the earlier Exchange Companies Manual. The SBP’s comprehensive review and revision are geared towards streamlining corporate governance, improving internal controls, and strengthening supervisory and enforcement mechanisms.
Key Highlights of the Framework:
- Effective Date and Compliance Timeline:
- The framework will come into effect on January 1, 2025.
- Exchange companies are required to align their internal policies, procedures, and systems to fully comply with the RFEC by June 30, 2025.
- Corporate Governance and Internal Controls:
- The framework outlines corporate governance structures and mandates robust internal controls and IT systems for exchange companies.
- Enhanced supervisory and enforcement regimes are introduced to ensure adherence.
- Reporting and Licensing Procedures:
- The RFEC consolidates reporting requirements into a unified source for streamlined compliance.
- Detailed protocols for obtaining authorization under Section 3AA of the Foreign Exchange Regulation Act (FERA) are provided, including:
- No Objection Certificate (NOC) for company formation.
- In-principle approval for operationalization.
- Final authorization for business commencement.
- The SBP reserves the right to reject applications at any stage and will communicate reasons for rejection.
- Capital Requirements:
- Minimum paid-up capital of PKR 1 billion is mandated.
- Capital-deficient companies must meet the following deadlines:
- PKR 600 million by December 31, 2025.
- PKR 800 million by December 31, 2026.
- PKR 1 billion by December 31, 2027.
- Companies must maintain 15% of their paid-up capital as a Regulatory Reserve (RR) with SBP in cash and/or approved government securities.
- Operational Efficiency and Compliance:
- Exchange companies are required to develop policies and procedures to ensure operational efficiency, accurate financial reporting, and adherence to applicable laws and regulations.
- Anti-Money Laundering (AML) Compliance:
- Companies must comply with AML/CFT/CPF regulations to prevent money laundering, terrorism financing, and proliferation financing.
- Voluntary and Enforced Closures:
- Companies intending to cease operations voluntarily can apply for authorization revocation.
- The SBP may also suspend, cancel, or limit the scope of business activities following the procedures outlined in the RFEC.
Modernized Approach:
By consolidating all relevant regulatory guidance, the RFEC aims to simplify compliance processes and provide clarity to stakeholders. This initiative is part of the SBP’s ongoing efforts to enhance transparency, foster financial stability, and ensure effective oversight of the exchange companies sector.
Import of Cash USD Extension: In addition to unveiling the updated RFEC, the SBP has granted a one-year extension to exchange companies for the import of cash U.S. dollars, providing operational flexibility amidst evolving market conditions.
The revised RFEC reflects the SBP’s commitment to strengthening Pakistan’s financial ecosystem through robust regulatory frameworks.
